Business Finance I

FN3000
Chapter One Homework
Discussion Questions 2, 4, 6, 8, 10, 12, 14
2. The recession of 2007-2009 resulted in more government regulation with strict
rules to limit banks willingness to take on too much risk. Because of this financial
crisis, the government had to intervene to save the bank system. The Dodd-Frank
Act was also passed in response to the financial crisis. This act was part of the new
legislation and regulations that resulted from the recession.
4. A limited liability partnership allows some of the investors to limit their liability.
One or more partners are the general partners and have unlimited liability for the
debts and actions of the firm; other partners are designated limited partners and
are limited and liable for their initial contribution.
6. Articles of incorporation, which lists the rights and limitations of the corporation,
are what is necessary to form a corporation.
8. Institutional investors have more influence in the way publicly owned
corporations are managed. As a group they have the ability to vote large number of
shares for the election of a board of directors. Through their ability to vote a large
number of shares, they are able to vote out poor performing board of directors if
they see fit. Institutional investors represent workers and investors so they take on
the responsibility to ensure firms are managed in efficient and ethical ways.
10. Insider trading occurs when someone has inside information that is not yet
known by the public and then uses this insider information to make decisions in
order to profit from trading in a companys publicly trading securities.

The government agency responsible for protecting against the unethical practice of
insider trading is the SEC (Securities and Exchange Commission).
12. A primary market is where the initial sale of a companys securities are made to
raise new funds. A secondary market is where the securities are traded between
investors. It is in the secondary market where prices go up or down and investors
buy or sell in response to their expectations of a corporations performance.
14. The changes that can take place under restructuring include changes in the
capital structure, and the selling of low-profit margin divisions with the profits from
the sale reinvested in better opportunities for the company. Sometimes
restructuring can result in current management being replaced or employees being
reduced. Mergers and acquisitions of bigger companies can also be seen as
restructuring.
In recent times, restructuring of companies like Hewlett-Packard, came about from
institutional investors forcing the board of directors to make changes and be more
controlling over the companies decisions.